Biz Break: Gigamon is first victim of Silicon Valley earnings season tumult

By Jeremy C. Owens jowens@mercurynews.com

Posted:
07/09/2014 02:43:59 PM PDT

Updated:
07/09/2014 02:53:21 PM PDT

Today: Gigamon plummets after revealing that earnings report will not live up to expectations. Also: PC shipments clock best quarter in two years.

The Lead: Gigamon reveals weak sales performance, stock plummets

Silicon Valley's earnings season has yet to truly begin, but the quarterly baring of financial information has already claimed its first victim on Wall Street, as Santa Clara networking company Gigamon shedded nearly a third of its valuation in a single day upon revealing a second consecutive disappointing quarter.

Gigamon announced before trading opened Wednesday morning that its sales in the second quarter did not live up to its projections, revealing that revenues will be around $35 million after the company's forecasts called for sales of $38 million to $42 million.

"We are disappointed in these preliminary results," CEO Paul Hooper said in Wednesday's announcement, adding, "We experienced challenges with closing the deals in our pipeline during the later stages of the quarter."

If the news sounds familiar, that's because Gigamon also pre-announced weak results in the previous quarter ahead of its actual report, and the repeat performance seemed to agitate investors and analysts even more the second time around. Gigamon's stock immediately plunged upon the session's opening, eventually dropping 32.4 percent to $12.29 as analysts rushed to downgrade the company in acerbic notes that questioned management's ability to accurately predict performance.

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"The magnitude of the second consecutive top-line miss brings management's statements and credibility into question and suggests that competition from newcomers such as Arista and/or overall curtailed market growth may have also been a factor in the company's underperformance," William Blair analyst Jason Ader wrote in a note.

At least five analysts downgraded the stock Wednesday, Barron's reported, and even those who still suggest buying the stock seemed uneasy with the company's performance.

"With the second pre-release in a row, we believe the idea that the 1Q miss was isolated becomes untenable," said Needham analyst Alex Henderson, who changed his rating on Gigamon from "Strong Buy" to "Buy" and slashed his price target from $34 to $20. "With no explanation offered for the second miss, we must assume there is a structural issue that is likely to take 2-4 quarters to fix."

Gigamon entered the public market just more than a year ago, selling shares at $19 apiece; shares have more than doubled at times on Wall Street, but the company has declined sharply in the past four months along with other Silicon Valley tech companies that debuted on Wall Street in the past two years.

Earnings season officially kicked off with Alcoa's report on Tuesday, but no major Silicon Valley tech firms will reveal their full reports until next week, when Intel, Yahoo and SanDisk are scheduled to release results.

SV150 market report: Tech stocks and PC shipments rebound

Wall Street bounced back from the previous day's tech bludgeoning on Wednesday, with indexes increasing across the board including in Silicon Valley, which received welcome news on personal computers after the bell.

Companies with large stakes in the personal-computer market breathed a sigh of relief Wednesday afternoon, when the quarterly trackers for Gartner and IDC showed that PC shipments clocked their best improvement in two years during the second quarter. While the two research firms' numbers differed somewhat, both reported the best year-over-year change for PC shipments since the second quarter of 2012 as the death of Windows XP support and growing popularity of low-cost laptops such as Google's Chromebooks helped boost the flow of PCs, especially in the United States. "One encouraging factor was a good intake of lower-end systems, including Chromebooks, which coincides with the recent slowing in tablet growth and perhaps signals the beginning of some stabilization on the consumer side," IDC Senior Research Analyst Jay Chou said in the news release. Intel hinted at a resurgence for PCs last month, which helped boost stock prices for Hewlett-Packard and other Silicon Valley companies in that industry; ahead of Wednesday's announcement, Intel gained 0.3 percent to $30.89 and HP gained 0.5 percent to $33.65.

Google gained 0.9 percent to $583.36 while securing a patent partnership with Canon, Dropbox, SAP and other companies; the Mountain View Internet giant also learned that a potential FTC inquiry into in-app purchases by children may have ben sparked by an email from an Apple official. Apple added four cents to close at $95.39 after losing a court case in China, and more analysts increased their price targets for the Cupertino company's stock, a common occurrence as shares head toward record highs. Zynga declined 1 percent to $3.01, but rebounded in after-hours trading following the San Francisco company's announcement of its first female board member and other director moves that put it back in Nasdaq compliance.

Facebook jumped 3.5 percent higher to $64.97 while the European Union investigates its WhatsApp acquisition, and rival Twitter gained 1.7 percent to $38.06 while continuing to break records thanks to the World Cup. Yelp added 0.9 percent to $71.36 while officially opposing Google's EU antitrust settlement, and Netflix declined 0.5 percent to $443 after signing a deal to broadcast a CBS summer series. ServiceNow, a cloud-software company that moved from San Diego to Santa Clara late last year, announced the $100 million acquisition of Israeli startup Neebula and saw its shares gain 1.4 percent to $56.64.